### Bonds and Equities Computation#### Topic: Issuing Bonds and Amortizing Premium by Straight-Line Method**Scenario:**Smiley Corporation, a wholesaler of repair products to equipment manufacturers, issued bonds on April 1, 20Y1. The details of the issuance are as follows:- **Face Value of Bonds:** $6,400,000- **Term:** 4 years- **Contract Interest Rate:** 7%- **Effective Market Interest Rate:** 5%- **Cash Received:** $6,858,887Interest is payable semiannually on April 1 and October 1.---#### Journal Entries**1. Record the Issuance of Bonds on April 1, 20Y1:**| Account | Debit | Credit ||------------------------------|-------------|-----------|| Cash | $6,858,887 | || Premium on Bonds Payable | | || Bonds Payable | | $6,400,000|---**2. Record the First Interest Payment on October 1, 20Y1:**- Amortization of Bond Premium for 6 months using the straight-line method.- **Instruction:** Round to the nearest dollar. Leave boxes blank if no entry is required.| Account | Debit | Credit ||------------------------------|-------|--------|| Interest Expense | | || Premium on Bonds Payable | | || Cash | | |---#### Feedback and Questions**a. Check My Work Button:**Allows verification of journal entries before submission.**b. Explanation Question:**- **Why was the company able to issue the bonds for $6,858,887 instead of the face amount of $6,400,000?** - The market rate of interest is **less than** the contract rate of interest.---**Navigation:**Proceed to the next section using the "Next" button.

Bonds are a source of funding. A bond issued by the company or the government to the public. The…

for issuing bonds and amortizing premium by straight-line method Corporation wholesales repair products to equipment manufacturers. On April 1, 20Y1, Smiley issued $6,400,000 of 4-year, 7% bonds at a market (effective) interest rate of 5%, receiving cash of $6,85 t is payable semiannually on April 1 and October 1. urnalize the entry to record the issuance of bonds on April 1, 20Y1. If an amount box does not require an entry, leave it blank. Account Credit sh emium on Bonds Payable Bonds Payable nterest Expense ✓ remium on Bonds Payable Cash Feedback Account Check My Work ournalize the entry to record the first interest payment on October 1, 20Y1, and amortization of bond premium for 6 months, using the straight-line method. Round to the nearest dollar. If an amount box require an entry, leave it blank. ✓ eck My Work Debit he market rate of interest is less than 6,858,887 0 0 0 6,400,000 Debit Credit Why was the company able to issue the bonds for $6,858,887 rather than for the face amount of $6,400,000? ✔ the contract rate of interest. Next

for issuing bonds and amortizing premium by straight-line method Corporation wholesales repair products to equipment manufacturers. On April 1, 20Y1, Smiley issued $6,400,000 of 4-year, 7% bonds at a market (effective) interest rate of 5%, receiving cash of $6,85 t is payable semiannually on April 1 and October 1. urnalize the entry to record the issuance of bonds on April 1, 20Y1. If an amount box does not require an entry, leave it blank. Account Credit sh emium on Bonds Payable Bonds Payable nterest Expense ✓ remium on Bonds Payable Cash Feedback Account Check My Work ournalize the entry to record the first interest payment on October 1, 20Y1, and amortization of bond premium for 6 months, using the straight-line method. Round to the nearest dollar. If an amount box require an entry, leave it blank. ✓ eck My Work Debit he market rate of interest is less than 6,858,887 0 0 0 6,400,000 Debit Credit Why was the company able to issue the bonds for $6,858,887 rather than for the face amount of $6,400,000? ✔ the contract rate of interest. Next

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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